HONDURAS Law and Practice Contributed by: Alberto Zúniga, Carlos Zúniga and Garhem Padilla, Baker Tilly Honduras
regarded as independent taxpayers. Income is there - fore taxed at the entity level before any distribution to partners. Despite the absence of local tax transparency, foreign investment groups – particularly US-based investors – frequently use the Sociedad de Responsabilidad Limitada in order to obtain “look-through” treatment under foreign tax rules. This transparency, however, arises exclusively under foreign law and does not alter the Honduran tax treatment of the entity as a separate taxpayer. In practice, there is no domestic equivalent to com - mon law partnerships or fiscally transparent limited liability companies. Investment structures are there - fore generally implemented through fully taxable cor - porate vehicles. 1.3 Tests for Determining Tax Residence Corporate Residence For corporate income tax purposes, residence in Honduras is determined primarily by incorporation. An entity is considered resident if it is organised and incorporated under Honduran law. The place of incor - poration is the decisive criterion for determining tax residence. Honduras does not apply a central management and control test as an alternative basis for residence. Therefore, foreign-incorporated entities are not treat - ed as residents solely because of management deci - sions taken within the country. Permanent Establishment Although residence is incorporation-based, non- resident entities may become subject to Honduran taxation if they operate through a permanent estab - lishment. The concept of permanent establishment is defined in Article 4 of the Regulations to the Transfer Pric - ing Law. A permanent establishment arises when a foreign entity maintains a fixed place of business in Honduras through which it carries out all or part of its activities, and includes: • centres of management or direction;
• branches, agencies or offices acting on behalf of the foreign enterprise; • factories, workshops or similar facilities; • sites used for the exploitation or extraction of natu - ral resources; and • warehouses used for domestic commercial activi - ties. A permanent establishment may also exist where a foreign company maintains offices providing techni - cal, financial or consulting services, including services linked to contracts executed inside or outside Hon - duras. In addition, a dependent agent may create a perma - nent establishment where a person or entity acting on behalf of the foreign enterprise habitually: • concludes contracts in the name of the foreign company; • carries out economic activities under contractual arrangements on its behalf; or • makes payments locally related to the develop - ment of its business activities. This dependent agent rule reflects a substance-over- form approach and aligns with the broader transfer pricing framework. Taxation Consequences Where a permanent establishment exists, only income attributable to Honduran-source activities is subject to tax, consistent with the territorial tax regime. Honduras does not currently have any double taxation treaties in force. Accordingly, residence and perma - nent establishment determinations are made exclu - sively under domestic legislation. 1.4 Applicable Corporate and Individual Tax Rates Corporate Taxation Corporations incorporated in Honduras are subject to income tax at a general rate of 25% on net taxable income. Profits are calculated based on accounting results, subject to statutory adjustments and deduc - tion rules.
213 CHAMBERS.COM
Powered by FlippingBook